MOSL: IDEA CELLULAR (Buy)-Change in strategy may protect market share-expect recovery beyond FY19
​Idea Cellular: Change in strategy may protect market share; expect recovery beyond FY19
(IDEA IN, Mkt Cap USD5.2b, CMP INR96, TP INR110, 15% Upside, Buy)
- Downward spiral continues: Idea Cellular (IDEA) continued reporting weak earnings due to ARPU downtrading and intensifying competition. Revenue declined 9% QoQ (-20% YoY) to INR74.7b (2% miss). EBITDA fell 20% QoQ (-47% YoY) to INR15b, with the margin down 290bp QoQ to 20.1%. In comparison, BHARTI witnessed a relatively good quarter, with a 5% decline each in revenue and EBITDA. IDEA’s net loss widened to INR11.1b (est. of INR17.8b) from INR8.1b in 2QFY17, led by lower EBITDA and higher D&A.
- ARPU under pressure in voice, data: ARPU remained subdued, with an 8% decline to INR132 due to downtrading. Voice ARPU fell by 7% QoQ to INR100 and data ARPU by 12% QoQ to INR105. Notably, overall subscribers fell 4% QoQ to 182.4m – the steepest in four quarters, led by pressure from RJio launch. Subscriber churn could severely hurt recovery, going forward.
- Expect recovery from FY19: IDEA’s change in strategy with data-heavy bundled offerings (bridging pricing gap v/s peers) should allow it to protect market share and benefit from ongoing market consolidation. We expect the market to bottom by end-FY18. Further, the company’s merger with Vodafone should drive operating synergies. We expect FY18E/19E EBITDA to grow -41%/10%.
Idea Cellular provides Global System for Mobile Communications (GSM) based mobile services and related telephony services to individuals and businesses in India. The company operates through three segments: Mobility Services, which provides GSM based mobile and related telephony services; International Long Distance (ILD), which provides international long distance services; and Passive Infrastructure, which provides passive infrastructure services. Co. offers 2G and 3G services that comprise roaming arrangements; ILD and other services; and a range of mobile broadband devices, including dongles and 3G smartphones that provide 3G applications and data services.
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